Required: Given the information above, calculate the value of Money Plus PLC using the following valuation methods: a) Price / Earnings Ratio. (using Track’s P/E ratio) c) Discounted cash flow method.
The managing directors of Track PLC are considering what value to place on Money Plus PLC, a
company which they are planning to take over soon. Track PLC’s share price is currently £4.21,
and the company’s earnings per share stand at 29p. Track’s weighted average cost of capital is
12%.
The board estimates that annual after-tax synergy benefits resulting from the takeover will be £5m,
that Money Plus’s distributable earnings will grow at an annual rate of 2% and that duplication will
allow the sale of £25m of assets, net of corporate tax (currently standing at 30%), in a year’s time.
Information relating to Money Plus PLC:
Financial Position Statement of Money plus PLC.
£m
Non-Current Assets 296
Current Assets 70
366
Equity:
Ordinary Shares (£1) 156
Reserves 75
231
7% Bonds 83
Current Liabilities 52
Total Liabilities 366
Statement of Profit or Loss Extracts
£m
Profit before interest and tax 76.0
Interest payments 8.3
Profit before tax 67.7
Distributable Earnings 47.4
Other Information:
Current ex-dividend share price
Latest dividend payment
Past four years’ dividend payment
Money Plus’s Equity Beta
Treasury bill yield
Return of the market
£2.25
16p
13p, 13.5p, 14p, 15p
1.15
5%
12%
Required:
Given the information above, calculate the value of Money Plus PLC using the following
valuation methods:
a) Price / Earnings Ratio. (using Track’s P/E ratio)
c) Discounted cash flow method.
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